Co-generation is the combined production of useful thermal energy and electricity (Combined Heat and Power, CHP) from the same primary fuel. CHP can take on many forms and encompass a range of technologies, but will always be based upon an efficient, integrated system that combines electricity production and heat recovery. By using the heat output from the electricity production for heating or industrial applications, CHP plants generally convert 75-80% of the fuel source into useful energy, while the most modern CHP plants reach efficiencies of 90% or more (IPCC, 2007). CHP plants also reduce network losses because they are sited near the end user.
The principle of CHP
In the operation of a conventional power plant, large quantities of heat are wasted in the cooling circuits and in the exhaust gases (Figure 1). Using this waste heat for industrial processes or space heating increases the overall efficiency of the process.
Since transporting heat over long distances is difficult, CHP systems are usually located nearby the place of heat demand and, ideally, are built to a size to meet the heat demand. If also the electricity is used locally, transmission and distribution losses are smaller.
By utilising the heat, the fuel-efficiency of a CHP plant can reach 90% or more. CHP therefore offers energy savings of 15 - 40% when compared to the separate production and supply of electricity and heat from conventional power stations and boilers, depending on the type of system it replaces (Figure 2).
CHP technologies and systems
A CHP site consists of four basic elements (Figure 3):
- Turbine or engine
- Electric generator
- Heat recovery system (in case of cooling, an absorption cool unit)
- Control system
The fuel combustion either creates mechanical energy directly, or first produces steam, which is subsequently converted to mechanical energy. The mechanical energy is used to spin a generator producing electricity.
Large CHP systems in industry and district heating use the same turbines as conventional power generation, i.e. steam turbines in the case of solid fuels (biomass, coal) or gas turbines for using natural gas or biogas. These turbines are mature, reliable and proven technologies.
The vast majority of large CHP systems are installed for industrial use or for district heating & cooling. More than 80% of total global electric CHP installations are used in energy-intensive industrial sites (IEA, 2007), i.e. in food processing, pulp & paper, chemicals, metals and oil refining. District heating primarily focuses on supplying low- and medium-temperature heat demand (i.e. space heating and hot tap water preparation), using the heat output from CHP plants.
Sufficiently large heat demand (or cooling demand)
The size of a CHP demand is determined by the demand for the most important product. Heat-driven CHP systems are most efficient as any excess electricity produced can be fed into the grid, whereas heat cannot easily be transported over great distances. Therefore, in most cases, the heat demand determines the size of the CHP plant.
The on-site heat load must be large enough to justify the investment in a CHP system. The heat load also needs to remain sufficiently constant during the day and between seasons to ensure that the system can operate at full load most of the time. Many systems can be operated at partial load, but this reduces their efficiency.
Characteristics of the heat demand
The type of system most suitable for a specific application depends on the characteristics of the heat demand:
- The ratio between the heat and power demand should be similar to that of the turbine. For example, steam turbines are well suited for sites where most energy is needed in the form of heat, as they have a power-to-heat ratio of 1:5.
- The technology chosen should be able to generate heat at the temperature and pressure required. Steam turbines and gas turbines can supply high-temperature pressurised steam for industrial processes
CHP systems using natural gas or biomass-derived fuels are cleanest and therefore most relevant for supporting sustainable development (although even coal-fired systems can improve efficiency when displacing separate generation using the same fuel).
Natural gas is currently the most used fuel for CHP in Europe and North America, as technologies for its use are proven and reliable. However, natural gas is not always available in developing countries, and is relatively expensive when compared to other fuels, like coal. In these cases biomass or biogas can be appropriate alternatives.
Other conditions facilitating the use of CHP include:
- The possibility to connect to the grid (if present) for grid supply at a reasonable price with the availability of back-up and top-up power at reasonable and predictable prices. This increases the flexibility of the system, and it enhances its economic viability as excess power can be sold to the network.
- Availability of space for the equipment at short distance from the heat demand.
The IEA (2008) estimates that CHP currently accounts for around 9% of global power generation. Its contribution to meeting energy demand is particularly high in Northern Europe, where it produces over 30% of electricity (Figure 4). [media:image:5]
The IEA’s “Accelerated CHP Scenario” suggests that total CHP capacity in the G8+5 countries region could reach 430 GWe in 2015 and 830 GWe in 2030 (Figure 5). (IEA, 2008) All countries can increase its use, although to different extents.
There is large potential for CHP in many developing countries where its penetration is still relatively low and the power sector experiences high growth. For example for India, a study (TERI & SEED, 2007) analyzing 300 small and medium sized existing industrial units in 10 different sectors suggests that there is technical potential of 7.5 GW of cogeneration plants. Nearly 69%of this estimated potential was identified in the sugar industry. This compares to a total estimated capacity of around 10GW in 2005.
Barriers to the future uptake of CHP
Experience from many countries suggests that CHP does not need financial support to make it viable if market conditions are good – it is a mature technology. Rather, targeted policies to remove existing barriers to its uptake can be sufficient (IEA, 2009).
The most common barriers are:
- Economic and market issues, relating to the difficulty in securing fair value for CHP electricity exported to the grid.
- Regulatory issues, relating to non-transparent, inconsistent interconnection procedures and backup charges.
- Social and political issues, particularly in relation to the lack of knowledge about CHP benefits.
- Difficulty in integrating the GHG emissions benefits of CHP into emissions trading regulation.
The IEA provides a good and recent analysis of the most common barriers for CHP development and policies to address them.
Biomass based CHP plants generally use solid biomass as fuel. Supply chains are sometimes poor, making it difficult for CHP installations to procure the fuel they need. Social and political considerations include the sustainability of the sources of biomass, the energy balance of fuel processing, and potential trade-offs between using biomass for food and for energy production. For biogas-based CHP, there are additional costs compared to natural gas applications because the fuel requires processing and cleaning.
The main contribution of CHP to socio-economic development and environmental protection is due to the efficiency benefits of CHP compared to conventional power generation primarily through potential cost savings, CO2 emissions reduction, and less reliance on (imported) resources.
The IEA (2008) has estimated the potential benefits of increasing the uptake of CHP in the G8+5 countries in 2008 by modelling an “Accelerated CHP Scenario” (ACS) which assumes favourable market conditions and ambitious policy support. In this IEA’s analysis, CHP reduces the required power sector investment by 3% up to 2015 (US$150 billion), compared to the Alternative Policy Scenario (APS) of the World Energy Outlook (IEA, 2008). By 2030, the savings climb to 7% (US$795 billion). (IEA, 2008) They are derived through:
- Savings in T&D network investment – since CHP generates electricity at the point of use, the requirement for T&D is reduced as CHP market share increases
- Savings through a significant reduction in non-CHP generation. The capital cost of new CHP investment is lower than the average capital cost of the central generation plants that is displaced. In particular, since greater use of CHP reduces T&D network energy losses, it reduces the overall generating capacity required to meet demand.
If these savings in power sector investments were passed on to consumers, they could benefit from lower energy prices.
Reliable supply of energy
Through efficient use of fuel, countries would reduce their dependence on fuel imports from abroad, or increase opportunities to export indigenous fuels. This, in turn, can improve a country’s balance of payments. (Delta Energy and Environment, 2009)
Blackouts are common in many places, often because peak demand exceeds the capacity that the transmission network can handle. This has stimulated industrial energy users in countries like India to install their own captive (CHP) power generation systems, so that their production process is not affected by supply interruptions. This indirectly benefits other users as well, as it lowers the load on the network, reducing the chance that demand exceeds the capacity of the power grid.
As with CO2 emissions, fuel efficiency improvement through CHP can also reduce emissions of other pollutants from power generation, like NOx, SOx and particulates. However, this depends on the combustion processes used.
Gas engines in particular can affect local air quality through NOx emissions, but effective cleaning systems exist. These are essential when considering sustainable development as a whole, and should therefore not be omitted for financial reasons
The World Bank Group has developed emission standards for generators to ensure that their application does not jeopardise air quality (World Bank Group, 1998). These have become the global standard for power generation projects in developing countries, including CHP.
CO2 emissions reductions
In 2015, in the IEA’s “Accelerated CHP Scenario”, CO2 emissions arising from new generation fall by more than 4% (170 Mt / year), while in 2030 this saving increases to more than 10% (950 Mt / year). (IEA, 2008)
CO2 emissions of specific plants depend on the fuel used.
Four parameters affect the economic viability: technology costs, energy prices, operating regime and policy measures.
For the developer of CHP, the upfront costs of installing CHP are usually higher than of heat-only boilers, the usual alternative. However, users benefit over the lifetime of the system through lower energy costs (reduced need to purchase electricity from the grid), so that CHP can save money overall.
Figure 7 shows the costs of different large scale, mature CHP technologies. They are between US$1,000 and US$1,500 per kWe. Gas engines have the highest operating costs, but are cheaper to install than other systems.
Energy costs determine the value of the costs savings that CHP can deliver. For a natural gas based CHP plant, the relative difference between gas and electricity prices, the so-called spark-spread, is particularly important, as a CHP plant operator has to buy natural gas and sells electricity. As a rule of thumb, developing CHP is feasible if electricity prices exceed gas prices by a factor 2.5. (IEA, 2008)
Operating profile and on-site energy demand
The economic performance of CHP systems during their lifetime depends on the operating profile and on-site energy demand.
The number of operating hours determines the absolute energy savings that can be achieved: the longer the operating time, the higher the revenue. Typically, a CHP plant must run at least 5,000 hours per year to make to economically viable (IEA, 2008).
In most cases, the value of the electricity consumed on-site, which is equivalent to the retail electricity price, is higher than the price the CHP operator receives fro selling its electricity to the grid. This again highlights the importance of sizing a CHP system based on the on-site energy needs.
Government policy also affects the economic conditions for CHP plants. It can impose costs through taxes (for instance taxation of natural gas) and charges (for instance for exporting electricity to the network). At the same time, many governments provide financial incentives for CHP, including capital grants, favourable export tariffs and tax benefits.
[Part of this information is kindly provided by the UNEP Risoe Centre Carbon Markets Group .]
CHP is a significant technology in the CDM. As of 2006, most CDM cogeneration projects were in food manufacturing and large industries in India and Brazil (WADE, 2006). As of January 2010, there were 78 registered CDM projects based on sugar cane bagasse energy, most of which use cogeneration plants, and 22 natural gas based cogeneration projects (UNEP Risoe, 2010).
For large-scale natural gas based CHP projects, project developers mainly use the methodology AM14: Natural gas-based package cogeneration . As of March 2011, there were 5 registered CDM projects using this methodology, for one of which CER's have been issued. Other CDM methodologies applied for cogeneration projects include AMS-II.B.: Supply side energy efficiency improvements – generation. 
Delta Energy & Environment (2009), A High-level Assessment of the Impact of Renewable Energy and Energy Efficiency Development on the UK Fossil Fuel Trade Balance, Report for the Renewable Energy Association
IEA (2007), Tracking Industrial Energy Efficiency and CO2 Emissions, OECD/IEA
IEA (2008), Combined Heat and Power – Evaluating the benefit of greater global investment
IEA (2009), Cogeneration and District Energy – Sustainable energy technologies for today…and tomorrow
Intergovernmental Panel on Climate Change (IPCC) (2007), Climate Change 2007 - Mitigation of Climate Change: Working Group III contribution to the Fourth Assessment Report of the IPCC (Climate Change 2007), IPCC, Cambridge University Press.
TERI, SEED (2007) Indian Market Potential for introducing CHP in SMEs and future collaboration strategies with European CHP suppliers
UNEP Risoe (2010), CDM/JI Pipeline Analysis and Database, January 1st 2010. available at http://cdmpipeline.org/ 
World Alliance for Decentralised Energy (WADE) (2006), Clean Development through Cogeneration - Combined Heat and Power Generation Projects in the Clean Development Mechanism
World Bank Group (1998), Thermal Power: Guidelines for New Plants